News that India's Finance Minister has described the amount of money given by the UK to his country as "peanuts" comes at a tricky time for Anglo-Indian relations.

Last week, in a snub to David Cameron and several of his European counterparts, the Indian authorities announced they were signing a £8bn defence deal with the French aircraft manufacturer Dassault rather than the consortium that produces the Eurofighter. The backlash was immediate; what do the French know about "cricket and curries", one Conservative MP demanded, while a headline in the Daily Mail declared: "Well, that's gratitude."

The idea of giving aid to India has grown increasingly controversial. There was a time when the country's image as an impoverished nation meant giving such assistance was a relatively easy political sell. But, as its economy has grown and as it has successfully managed to rebrand itself as a place that is "shining", giving aid has seemed to counter common sense. Why should a country in a precarious economic position be handing over money to one that has more billionaires than the UK and an overseas aid programme of its own, many have asked.

The controversy has been given a new twist by a newspaper's discovery of a speech made in the Indian parliament in 2010 by the Finance Minister Pranab Mukherjee who said India did not want British assistance. "We do not require the aid," he said.

For India to have rejected such aid after David Cameron had claimed the country would be his foreign policy priority would have been deeply embarrassing to the Prime Minister. The report in The Sunday Telegraph claimed that India agreed to keep the aid only after lobbying from officials from the Department for International Development (Dfid).

But the situation is not so simple; despite the headlines about 7 per cent growth, the overwhelming majority in India live in grinding poverty.

Last month, Prime Minister Manmohan Singh talked of the "national shame" that 42 cent of Indian children suffered from malnutrition.

In financial terms, Britain's aid to India is tiny, about £1.2bn over the next five years. But Dfid officials have always argued that its aid projects can have a real impact. They also point out that scrapping such schemes could be devastating, as they are unlikely to be replaced. What has given the debate another dimension has been the admission that aid is not simply about altruism. Few would dispute that aid has always been partly about developing a broader relationship with countries.

But under the Coalition Government the need for an obvious quid pro quo has been more pronounced. In December, asked about the strategic goals of Britain's aid to India, the International Development Minister, Andrew Mitchell, said it was part of a broader partnership that also included the hoped-for sale of fighter jets. "It's an important market, and for our children and grandchildren, it will be even more important," he said.

Giving aid to India has become an unfashionable policy. A recent YouGov poll suggested four times as many people in the UK were opposed to it than supported it. The current programme is due to expire in 2015. It would be a brave person who bets that it will be renewed.